What is 401(k) Plan Payroll Integration?
As you may know, payroll solutions help you manage employee salaries, bonuses, and often employee expense payments. Typically, your payroll software of choice also helps to automate administration and keeps your business compliant with tax laws and regulations. Healthcare benefits and life insurance deductions are also pretty commonly supported.
When you offer a 401(k) plan to your employees, you may also want to consider moving these contributions as part of your payroll management. There is an additional level of administration required to move employee contributions from payroll to your retirement plan. This typically includes:
- Monitoring employee eligibility
- Overseeing employee and employer enrollment and plan communication
- Keeping track of changes in contribution rates or salaries
- Calculating and depositing the contributions
Payroll integration automates these processes by transferring data between the two systems. Without payroll integration, a manual upload would be necessary for your 401(k) solution to deduct the appropriate participant contribution amount from their paycheck. You would also need to manually monitor changes to your employees’ deferral rates and salaries.
The manual process can be pretty simple when you have fewer than 20 employees, but as your number of employees grows, the complexity and time to manage increases and integration becomes much more appealing.
What are the Advantages of Integrating Your Payroll Provider with Your 401(k)?
1. Saves You Time and Streamlines Administration (especially for businesses with >20 employees)
- Payroll Integration saves you time by automatically deducting participant 401(k) contributions from each payroll and maintains changes in employee employment. This eliminates the need to continuously monitor recordkeeping reports so you can focus on other business needs.
2. Helps Keep your Business Compliant with Regulations
- 401(k)s keep a running record of employee data through what’s called an employee census. This document contains:
- Employee personal information (birth dates, addresses, names, etc)
- Employment data (salaries, employee eligibility dates, employment status, etc)
- Contribution amounts
- Each year, companies must complete nondiscrimination testing to ensure their 401(k) plan is compliant with IRS (Internal Revenue Service) rules. If you have a Safe Harbor 401(k) plan design, your plan will automatically satisfy this. The census data is a key component in passing the testing, and so it is important that the census document is up to date. Payroll integration helps with this process by continuously reconciling employee data, so come testing season, you can be confident that the information you have on file for your plan is accurate.
3. Reduces the Risk of Errors
- The automatic transmission of contributions and data also helps reduce the risk of errors. The system automatically calculates the required deferral and accounts for any recent changes. With payroll integration, you and your employees can feel confident that any changes made are executed in a timely manner.
180-Degree Versus 360-Degree Payroll Integration – What’s the Difference?
If your payroll provider and your 401(k) provider offer payroll integration, you may have either a 180-degree payroll integration option or a 360-degree payroll integration option.
You can think of 180-degree payroll integration as being one-directional. The data only flows from the payroll provider to the 401(k) provider. The contribution process can be automated, but if an employee indicates a change in contribution rate, the employer must manually update the payroll system to deduct the necessary funds.
360-degree payroll automation offers the most automated and synched integration. The data exchange is full circle (360 degrees) from payroll provider to 401(k) solution and back to the payroll provider. After employee data is uploaded, processing is done automatically, so changes made to employee contribution rates, salaries, or 401(k) loans are updated immediately and do not need to be adjusted by the employer.
What to Look for in a Payroll Provider
In addition to 401(k) integration, payroll solutions can have software integrations to help you manage other administrational needs. When looking for a new payroll provider, conduct an analysis of what is required for your business, whether it be managing employee expenses, health insurance distribution, filing your company’s taxes, etc., and then research payroll options that help you streamline these processes and allow you to manage everything in one place. Not all payroll providers offer the same integrations and capabilities, and you may not find a one-size-fits-all solution, but with so many options out there, you’ll be able to find something that fits your business and budget needs.
Payroll Providers and Your 401(k) Plan
Selecting a payroll provider is highly dependent on the requirements of your company and your budget. If you already have a payroll solution, there is a strong likelihood you’ll find a 401(k) provider that has an integration with that solution. However, when thinking about your 401(k) plan benefits, it’s essential to understand the investment offering, fund expenses, and services versus any 401(k)/payroll provider that is “selling” integration as its primary benefit.
There are very good 401(k) providers that provide integration and focus on providing a quality, low-expense investment offering too. As an example, ShareBuilder 401k differentiates itself with a high-quality investment line-up paired with exceptional service, and offers payroll integration with over 130 payroll vendors, so most clients are able to simplify their plan management. Some of the most popular payroll solutions on our lineup include Gusto, QuickBooks payroll, Paychex, and ADP. We work with our third-party administrator for these integrations, so check out this list of all payroll vendors we partner with. Keep in mind, some payroll solutions have 180-degree integration, and some have the full 360-degree integration. This impacts how you will manage your plan’s payroll processing, so put this on the list of what to consider when determining what’s right for your business.
Key Takeaways
- Payroll integration automatically transfers data between your payroll provider and 401(k) solution. This data includes employee deferral rates and salary changes, updates to employment status, and employee eligibility.
- Payroll integration can help you save time, stay in compliance with IRS regulations, and reduce your risk of errors. Typically, payroll integration tends to benefit firms with more than 20 employees the most.
- There are 180-degree and 360-degree payroll integrations. 180-degree payroll integration means that the data only flows from the payroll provider to the 401(k) provider. 360-degree payroll integration allows for data to flow from the payroll provider to the 401(k) solution and back to the payroll provider.
- There are many payroll solutions out there, and many integrate with 401(k) plans. Ensure you prioritize the 401(k) provider’s investment offering and service as well as cost versus the payroll solution “reselling” or selling their own offering.
- There are very good 401(k) providers that integrate with most of the top providers out there. ShareBuilder 401k is one example of a top provider that offers payroll integration with over 130 payroll vendors, including Gusto, QuickBooks payroll, Paychex, and ADP.